Semiconductor Manufacturing International Corporation

Date: July 17, 2018

By:

/s/ Dr. Gao Yonggang

Name:

Dr. Gao Yonggang

Title:

Executive Director, Chief Financial Officer and Joint Company Secretary

References are made to the announcement dated 30 January 2018, the circular dated 6 March 2018 and the poll results announcement dated 27 March 2018 of the Company    in relation to  the proposed capital contribution and deemed disposal of equity interest  in SMSC, a joint venture and a subsidiary of the Company under the Joint Venture Agreement. According to the terms of the Joint Venture Agreement, China IC Fund shall complete the Contribution prior to 30 June 2018. On 29 June 2018, the Contribution was completed and China IC Fund now holds approximately 24.71% of equity interest in SMSC.

CENTRALISED FUND MANAGEMENT AGREEMENT

The Company announces that on 1 June 2017, the Company and its subsidiaries, SMIC Beijing and SMSC entered into the Centralised Fund Management  Agreement,  pursuant to which: (i) the Company will procure its wholly-owned subsidiary SMIC Beijing to carry out centralised management of the Company’s RMB fund and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SMSC    and its Controlling Subsidiaries will participate in the Company’s centralised fund management system, which will be managed by SMIC Beijing in accordance with the relevant PRC laws and regulations. The Centralised Fund Management Agreement is with a term commenced on 1 June 2017 and ending on 31 December 2020.

*

For identification purposes only

FRAMEWORK AGREEMENT

The Company announces that on 11 June 2018, the Company and its subsidiaries,  SMSC entered into the Framework Agreement in relation to the supply of goods, rendering of or receiving services, leasing of assets, transfer of assets, provision of technical authorisation or licensing and provision of guarantee. The Framework Agreement is with a term commenced on 26 April 2018 and ending on 31 December 2019.

LISTING RULES IMPLICATIONS

The Centralised Fund Management Agreement and the Framework Agreement were entered into by the parties at a  time when SMSC was not a  connected person. Due to  the completion of the Contribution by China IC Fund (which indirectly holds approximately 14.82% equity interest in the Company and is therefore a connected person of the Company at the issuer level) in approximately 24.71% equity interest in SMSC as disclosed in the Company’s announcement dated 30 January 2018, SMSC has therefore become a connected subsidiary of the Company as defined  under  Rule 14A.16 of the Listing Rules, and is thus a connected person of the Company. The Centralised Fund Management Agreement, the Framework Agreement and the transactions contemplated thereunder constitute continuing transactions which have subsequently become continuing connected transactions upon the completion of the Contribution by China IC Fund.

This announcement is made pursuant to Rule 14A.60 of the Listing Rules, which requires the Company to comply with the annual review and disclosure requirements  and re-comply with all applicable connected transaction requirements upon renewal or variation of the Centralised Fund Management Agreement or the Framework Agreement (as the case maybe).

Summary of Principal Terms of the Centralised Fund Management Agreement

Execution Date:

1 June 2017

Effective Period:

Effective from 1 June 2017 or the date when all the necessary approvals required under the applicable law, the articles of association of the parties and the requirements of the Stock Exchange and the New York Stock Exchange, Inc. are obtained, whichever is later, and ending on 31 December 2020.

Parties

(i)  the Company;

(ii)  SMIC Beijing, a wholly-owned subsidiary of the Company; and

(iii)  SMSC, a subsidiary of the Company.

1.

Internal Deposit Services (the ‘‘Internal Deposit Services’’)

2.

Collection and Payment Services and Foreign Exchange Services (the ‘‘Collection and Payment Services and Foreign Exchange Services’’)

3.

Internal Loan Services (the ‘‘Internal Loan Services’’)

4.

Provision of Letter of Credit Services (the ‘‘Provision of Letter of Credit Services’’)

5.

Other Financial Services (the ‘‘Other Financial Services’’)

1.

Internal Deposit Services

2.

Collection and Payment Services and Foreign Exchange Services

3.

Internal Loan Services

4.

Provision of Letter of Credit Services

5.

Other Financial Services

Summary of Principal Terms of the Framework Agreement

Execution date:

11 June 2018

Effective period:

Commenced on 26 April 2018 and ending on 31 December 2019. Two months before the expiry date of the Framework Agreement, the parties will consider whether to renew the Framework Agreement.

Parties:

(i)  the Company on behalf of itself and its subsidiaries (other than SMSC); and

(ii)  SMSC

1.

Purchase and sale of spare parts, raw materials, photomasks and finished products;

2.

Rendering of or receiving services, including, without limitation, (a) processing and testing service; (b) sales service; (c) overseas market promotion and customer service; (d) procurement service; (e) research, development and experiment support service; (f) comprehensive administration, logistics, production management, IT and other service; and (g) water, electricity, gas and heat provision service;

3.

Leasing of assets, such as plant, office premises and equipment;

4.

Transfer of assets;

5.

Provision of technical authorisation or licensing as well as the sharing of  research  and development costs; and

6.

Provision of guarantee by Group A for SMSC’s financing activities.

(1)

the price prescribed or approved by state or local price control department (if any);

(2)

a reasonable price in accordance with the industry guided price;

(3)

the comparable local market price, which shall be determined after arm’s length negotiation between both parties with reference to (a) the market price charged by independent third parties for comparable product or services at the same time and in the same region; and (b) the  lowest quotation that the purchaser can  obtain by  way  of public tender;

(4)

where there is no comparable local market price, the price based on the principle of cost plus a fair and reasonable profit rate, being the aggregate sum of (a) the actual reasonable cost; and (b) a fair and reasonable profit rate;

(5)

where none of the above general pricing principles are applicable, the price determined by other reasonable means as agreed upon by both parties on  the  condition that the relevant costs are identifiable and are allocated to each party involved on a fair and equitable basis.

Types of Framework Agreement CCT

Pricing policy

I.  Purchase and sale of goods (‘‘Type I CCT’’)

1.  Purchase and sale of spare parts between Group A and SMSC

The market price of spare parts, with the relevant transportation fees borne by the purchaser, with reference to market price (see general pricing principle (3) above)

2.  Purchase and sale of raw materials between Group A and SMSC

The market price of raw materials, with the relevant transportation fees borne by the purchaser, with reference to market price (see general pricing principle (3) above)

3.  Purchase of photomasks by SMSC from Group A

With reference to market price (see general pricing principle (3) above)

4.  Sales of finished products by SMSC to Group A, which will resell such finished products to third-party customers

With reference to market price (see general pricing principle (3) above)

II.  Rendering of or receiving services (‘‘Type II CCT’’)

1.  Mutual rendering of processing and testing service due to Group A and SMSC’s production capacity limits of certain types of products

With reference to market price (see general pricing principle (3) above)

2.  Provision of sales service by Group A to SMSC

Cost plus a fair and reasonable profit rate in line with the industry (see general pricing principle (4) above) based on allocation of the sales expenses according to the revenue from the sales plus a  subsequent profit rate  of 8%

3.  Rendering of overseas market promotion and customer service by Group A to SMSC

Cost plus a fair and reasonable profit rate in line with the industry (see general pricing principle (4) above), based on allocation of the sales expenses according to the revenue from the sales plus a  subsequent profit rate  of 8%

Types of Framework Agreement CCT

Pricing policy

4.  Rendering of procurement service by Group A to SMSC

Cost plus a fair and reasonable profit rate in line with the industry (see general pricing principle (4) above), based on allocation of labour cost and relevant resources consumption according  to working  hours  or workload plus a subsequent profit rate of 5%, or with reference to market price provided by independent third parties

5.  Provision of research, development and experiment support service by Group A to SMSC

With reference to market price (see general pricing principle (3) above)

6.  Rendering of comprehensive administration, logistics, production management and IT service by Group A to SMSC

Cost plus a fair and reasonable profit rate in line with the industry (see general pricing principle (4) above), based on allocation of labour cost and relevant resources consumption  according  to  the proportion of working hours or workload plus a subsequent profit rate of 5%, or with reference to market price provided by independent third parties

7.  Provision of water, electricity, gas and heat by Group A to SMSC

The price prescribed or approved by state or local price control department (see general pricing principle (1) above) or with reference to market price (see general pricing principle (3) above)

III.  Leasing of assets (‘‘Type III CCT’’)

1.  Leasing of plant and office by Group A to SMSC

With reference to market price (see general pricing principle (3) or principle (4) above)

2.  Mutual  leasing of equipment

With reference to market price (see general pricing principle (3) above)

IV.  Transfer of assets (‘‘Type IV CCT’’)

1.  Mutual  transfer of equipment

With reference to market price (see general pricing principle (3) above)

V.  Provision of technical authorisation or licensing (‘‘Type V CCT’’)

1.  Provision of technical authorisation or licensing by the Company to SMSC

With reference to market price (see general pricing principle (3) or principle (5) above)

Types of Framework Agreement CCT

Pricing policy

2.  Sharing of research and development costs

The price determined by other reasonable means as agreed upon by both parties (see general pricing principle (5) above)

VI.  Provision of guarantee for financing activities (‘‘Type VI CCT’’)

1.  Provision of guarantee by Group A for SMSC’s financing activities

With reference to market price (see general pricing principle (3) above)

Nature of Centralised Fund Management Agreement CCT

Transactions For

the Year Ended

31 December

2017⁽¹⁾⁽²⁾

(US$ million)

Internal Deposit Services

53

Collection and  Payment Services and Foreign Exchange Services

—

Internal Loan Services

0⁽³⁾

Provision of  Letter of Credit Services

—

Other Financial Services

—

(1)

Representing the amounts of all transactions between the Company, SMIC Beijing and SMSC for the year ended 31 December 2017.

(2)

Audited.

(3)

The transaction amount was RMB400.02.

Nature of Centralised Fund

Management Agreement CCT

For the year ending 31 December

2018

2019

2020

(US$

million)

(or other

currencies

in equivalent amount)

(US$

million)

(or other

currencies

in equivalent amount)

(US$

million)

(or other

currencies

in equivalent amount)

Internal Deposit Services (representing the maximum daily outstanding balance, including accrued interests placed by SMSC with SMIC Beijing)

2,000

2,000

2,000

Collection and Payment Services and Foreign Exchange Services (representing the maximum daily transaction amount for collection and payment services and foreign exchange services provided by SMIC Beijing to SMSC)

2,000

2,000

2,000

Internal Loan Services (representing the maximum balance of internal loans provided by SMSC Beijing to~SMSC per calendar year)

2,000

2,000

2,000

Provision of Letter of Credit Services (representing the maximum total amount of the letter(s) of credit issued on SMSC’s behalf per calendar year)

2,000

2,000

2,000

Other Financial Services (representing the maximum fees charged by SMIC Beijing for providing the Other  Financial Services to SMSC per calendar year)

50

50

50

Nature of Framework Agreement CCT

Transactions For

the Year Ended

31 December

2017(1)(2)

(US$ million)

Type I CCT

—

Type II CCT

5.88

Type III CCT

—

Type IV CCT

—

Type V CCT

—

Type VI CCT

—

(1)

Representing the amounts of all transactions between Group A and SMSC for the year ended 31 December 2017.

(2)

Audited.

For the year ending 31 December

Nature of Framework Agreement CCT

2018

(US$ million)

2019

(US$ million)

Type I CCT

1

61

Type II CCT

11

31

Type III CCT

7

65

Type IV CCT

—

316

Type V CCT

100

300

Type VI CCT

500

500

a)

the Balance Cap of US$495 million is primarily determined based on the historical amounts of guarantee provided by Company to SMSC and the financing needs of SMSC for the years ending 31 December 2018 and 2019.

b)

the Guarantee Fee Cap of US5 million for each year during the three years ending 31 December 2018 and 2019 is determined based on the Balance Cap of US$495 million and a guarantee fee charge rate up to  1.0%. Such charge rate was determined based  on the fee quotes provided by commercial banks who are independent third parties.

1.

SMSC has established a related and connected party transaction review committee (the ‘‘Review Committee’’), which is set up under the board of directors of SMSC. The Review Committee shall report to the board of directors of SMSC and shall be accountable to the board of directors of SMSC. The Review Committee comprised of three members of which one of them was appointed by SMIC Holdings Corporation and Semiconductor Manufacturing International (Shanghai) Corporation (‘‘SMIC Shanghai’’) and the other two were appointed by each of Shanghai Integrated Circuit Industry Investment Fund Management Co., Ltd (‘‘Shanghai IC Fund’’)  and  China  IC Fund. Poll system is adopted for the voting of the Review Committee and resolutions of the committee should be passed by votes of more than half of the members of the committee. The Review Committee is responsible for reviewing and approving the framework agreement and pricing policy of related and connected transactions entered into by SMSC and the Group. The Review Committee shall monitor and review related and connected party transactions between SMSC and the Group;

2.

The Company’s compliance office will perform quarterly check on transactions entered under the Centralised Fund Management Agreement and the Framework Agreement to ensure compliance with pricing policies and annual caps are not exceeded;

3.

The Company’s external auditors will conduct an annual review of the transactions entered into under the Centralised Fund Management Agreement and the Framework Agreements to ensure the transaction amounts are within the annual caps and the transactions are in accordance with the terms set out in the Centralised Fund Management Agreement and the Framework Agreements; and

4.

Specific to the Framework Agreement CCT, Group A and SMSC each employs and maintains separate business, operation and accounting personnel of its own. There is clear segregation of approval authority and duty between the two entities. In general, for each type of the Framework Agreement CCT under the Framework Agreement, either the Company or SMSC would propose the transaction price after the review   and approval by the relevant department(s), such as the manufacturing department, business administration department, the finance and accounting department, depending on the type of the transaction. The counter party of the relevant department(s) will then, also review and approve the pricing of  the  transaction  before acceptance. As the Company and  SMSC  maintains separate business units  and separate personnel, the relevant department(s) that proposes  the  transaction  price and the relevant department(s) of the counter party that accepts such transaction price would be different persons and under different departmental management;

1.

Open up the domestic and foreign funding channels of the Group;

2.

Reduce the Group’s overall debt levels and increase efficient fund usage;

3.

Reduce the Group’s interest expense; and

4.

Obtain favorable exchange rate for the Group.

‘‘Board’’

the board of Directors;

‘‘Centralised Fund Management Agreement’’

the centralised fund management agreement dated 1 June 2017 entered into among the Company, SMIC Beijing and SMSC in relation to the Centralised Fund Management Agreement CCT; ‘‘

“Centralised Fund Management Agreement CCT’’

the continuing connected transactions contemplated under the Centralised Fund Management Agreement;

‘‘China IC Fund’’

國家集成電路產業投資基金股份有限公司 (China Integrated Circuit Industry Investment Fund Co., Ltd.*), a company established under the laws of the PRC;

‘‘Company’’

Semiconductor Manufacturing International  Corporation  (中芯國際集成電路製造有限公司*), a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the main board of the Stock Exchange and the American depositary shares of which are  listed  on the New York Stock Exchange, Inc.;

‘‘Continuing Connected Transactions’’

Framework Agreement CCT and Centralised Fund Management Agreement CCT;

‘‘Contribution’’

30% of its outstanding contributions in SMSC according to the terms of the Joint Venture Agreement;

‘‘Controlling Subsidiaries’’

companies where SMSC has an equity interest of above 50%;

‘‘Director(s)’’

the director(s) of the Company;

‘‘Framework Agreement’’

the framework agreement entered into between  the  Company  and SMSC on 11 June 2018 in relation to the Framework Agreement CCT;

‘‘Framework Agreement CCT’’

the continuing connected transactions contemplated under the Framework Agreement;

‘‘Group’’

the Company and its subsidiaries;

‘‘Group A’’

the Company and/or its subsidiaries (other than SMSC and its subsidiaries);

‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC;

‘‘Joint Venture Agreement’’

the joint venture agreement dated 30 January 2018, the details of which can be found under the announcement of the Company dated 30 January 2018;

‘‘Listing Rules’’

the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

‘‘PRC’’

the People’s Republic of China (for the purposes of this announcement excluding Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan);

‘‘RMB’’

Renminbi, the lawful currency of the PRC;

‘‘Shareholder(s)’’

the holder(s) of the Share(s);

‘‘Shares’’

ordinary shares of par value US$0.004 each in the capital of the Company listed on the Stock Exchange;

‘‘SMIC Beijing’’

Semiconductor Manufacturing International (Beijing) Corporation* (中芯國際集成電路製造（北京）有限公司), a wholly foreign-owned enterprise established in the PRC and a wholly-owned subsidiary of the Company;

‘‘SMSC’’

中芯南方集成電路製造有限公司(Semiconductor Manufacturing South China Corporation*), a Chinese-foreign joint venture

established under the laws of  the  PRC;

‘‘Stock Exchange’’

The Stock Exchange of Hong Kong Limited;

‘‘U.S.’’ or ‘‘United States’’

the United States of America;

‘‘US$’’

United States dollar, the lawful currency of the  United  States; and

‘‘%’’

per cent.

By order of the Board

Semiconductor Manufacturing International Corporation

Gao Yonggang

Executive Director, Chief Financial Officer and Joint Company Secretary